Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the Break of Legal Cultures

KSIĘGA PAMIĄTKOWA 60-LECIA SĄDU ARBITRAŻOWEGO PRZY KIG W WARSZAWIE, WARSZAWA, ARBITRATION COURT ATTACHED TO THE POLISH CHAMBER OF COMMERCE, pp. 411-437, Józef Okolski, ed., LexisNexis, 2010

27 Pages Posted: 12 Dec 2010

Date Written: October 7, 2010

Abstract

Arbitration is usually defined as a manner of dispute resolution. While in most legal systems the arbitration agreement is considered a type of procedural agreement, it is more closely connected with substantive law than procedural agreements stricto sensu, i.e. agreements entered into between parties related to particular pending or immediate proceedings with the intention of directing the course thereof. If one accepts the definition of procedural agreement as an agreement that induces its direct effect in the area of procedure, in relation to a certain formal procedure (whatever the kind), i.e. that these agreements are effective in relation to such procedure, such definition is evidently correct and relatively broad and is a definition of procedural agreement in the broad sense. The term procedural agreement so broadly defined can no doubt cover also arbitration and prorogation agreements, as arrangements on the manner of resolving potential disputes arising from substantive legal relations based either on a contract or otherwise (for example within extra-contractual obligations and on jurisdiction of a particular forum/tribunal or the manner of constituting tribunal to hear and to resolve such disputes, as well as other procedural terms relating to the particular procedure. It is an arrangement on a potential [future] procedure (approved and regulated at least in its basic principles by law) in its broadest sense, usually a procedure in the sense of an adversary fact-finding proceeding. Therefore there is no need for such an agreement to be made in respect of one specific proceeding. The basic typical feature of procedural agreement in the above-defined broad sense is its ability to induce effects approved by procedural law, including establishing the jurisdiction of particular forum (tribunal) before which a certain proceeding may be commenced and held. Besides, there is also another type of procedural agreement which I call procedural agreement in the narrow sense (or narrow procedural agreement) and which are entered into only in the course of a particular proceeding. The effects of these agreements are operative solely and exclusively within such particular proceeding or with respect to the subject of the proceeding, whether to the subject in its entirety or partially, when the subject matter scope delimited by the relevant procedural agreement is more narrow than the scope of the subject of the given proceeding. Thus the subject of such procedural agreement in the narrow sense cannot in any situation exceed the scope of the subject of the proceeding. If such situation occurs, it has to be considered according to the relevant applicable law whether such subject matter excess of the procedural agreement brings about some qualified effect (such as invalidity/nulity or simply ineffectiveness of the agreement) in respect of the procedural agreement in its entirety or to the part exceeding the subject of the procedure only. This category of procedural agreements includes for instance reconciliation agreements concluded in the course of proceedings, agreements on withdrawal of action, agreements on withdrawal of a remedy already filed, evidentiary agreements (on types of evidence and manner of taking evidence) etc. It is not only possible but in the author‘s opinion also necessary to apply substantive law to procedural agreements, at least as supportive instruments in questions not regulated by procedural law, the effect of procedural agreements (in any case at least of narrow procedural agreements and as a rare exception possibly also in broad procedural agreements in some countries according to their legal approach under the theory of extensive effect) is limited solely to the area of procedure. For a narrow procedural agreement to be valid and binding for parties, the parties must act within their respective procedural capacities, that is, within their respective procedural personalities. It is an agreement entered into by parties in civil proceedings in which they agree certain procedural legal effects. The subject-matter of the agreement is all relations that are subject to discretionary freedom of the parties in compliance with the law and rules applicable to a given specific proceeding and to the manner and course of the proceeding. In any case the procedural agreements in terms arbitration agreement (arbitration clause) will commonly be evaluated pursuant to substantial law and its institutes, at least in civil law, while in the common law the judges dispose of a broad range of possibilities to evaluate such agreements abstractedly from the substantive law. This close link between arbitration agreements and substantive law arises from the fact that arbitration clauses are entered by the parties before any particular proceedings are initiated, and in most cases, simultaneously with the establishment of a substantive legal relation itself, i.e. a particular contract or legal relation similar in nature, and they are intended to serve as a dispute resolution mechanism in order to settle disputes concerning the main agreement in cases concerning arbitration clauses, or a separate contract in cases of formally separate arbitration agreements. The purpose of the arbitration agreement is purely procedural, i.e. designating the method of dispute resolution for the main agreement.

The theoretical problem of distinguishing between the procedural and substantive nature of dispute resolution agreements becomes very real in practice when it comes to the question of determining the nature and legal effect of multi-step (called as combined or multi-tiered as well) agreements. The determination of the substantive or procedural nature of such agreements directly affects their enforcement in practice. The effect of the initial tiers of the MDR agreement is limited mean that MDR clauses are unsuitable as efficient means of dispute resolution? It has to be stated that by saying that the MDR clause is not suitable to prevent resorting to the arbitration or court proceedings, it does not mean that it is of no effect. The nature of the clause as a substantive agreement does indeed affect the position of the parties in the dispute. The question of the effectiveness and nature of MDR clauses has to be separated.

Civil law jurisdictions generally tend to provide a less rigorous approach to jurisdictional awards, which means that the judicial review of such awards is performed at the outset, i.e. the court is authorized to fully remit the arguments of the arbitral tribunal related to jurisdiction and in turn overturn the arbitral tribunal’s decision on grounds of improper justification of the award or inconsistency with applicable law. In other civil law jurisdictions the rigid nature of the jurisdictional ruling is softened by the possibility of the continuous review of the issue of jurisdiction, which can be addressed throughout the proceedings. In the Czech arbitration law and in other jurisdictions there is also an otherwise rarely recognized duty of arbitrators to address the issue of jurisdiction ex officio. On the other hand, common law jurisdictions only provide limited possibility for the review of jurisdictional decisions. This solution gives the arbitrators great autonomy to acquire jurisdiction over disputes, or more precisely, it enables parties to the arbitration agreement to transfer their fate fully into the hands of arbitrators. This situation is both criticized and praised at the same time. From the above, it seems obvious that a large number of civil law jurisdictions that have been examined do not consider the decision on jurisdiction to be a decision on the merits, or a substantive decision. This decision, in terms of the definitions presented, is of a purely procedural nature, and in turn does not constitute a res iudicata objection. One of the consequences is that for example the rendering of an award on jurisdiction as a kind of interim award does not limit the court to set-aside the final award in the same proceedings, even if any setting-aside has not been applied specifically regarding the [interim] award on jurisdiction, if rendered. The jurisdictional issue is, as a matter of principle, to be understood in the particular jurisdictions as a spine of the whole proceedings (arbitration).

Keywords: Arbitration, Arbitration Agreement, Arbitral Tribunal, MDR Clauses, Multi-Step Agreements, Multi-Tired Agreements, Civil Law, Common Law, Procedural Law, Substantive Law, Procedural Agreement, Arbitral Award, Kompetenz-Kompetenz, Lis Pendens, Procedural Effects, Separability, Place of Arbitration

JEL Classification: K12, K33, K40, K41

Suggested Citation

Belohlavek, Alexander J., Arbitration Agreement, MDR Clauses and Relation Thereof to Nature of Jurisdictional Decisions on the Break of Legal Cultures (October 7, 2010). KSIĘGA PAMIĄTKOWA 60-LECIA SĄDU ARBITRAŻOWEGO PRZY KIG W WARSZAWIE, WARSZAWA, ARBITRATION COURT ATTACHED TO THE POLISH CHAMBER OF COMMERCE, pp. 411-437, Józef Okolski, ed., LexisNexis, 2010, Available at SSRN: https://ssrn.com/abstract=1723887

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